Every business, from a large industrial plant to a single- room small business, needs energy to operate and thrive. So, it’s critical you select the right energy product based on your energy data information available and manage your investment with the right services and tools.
There are a variety of energy products that provide unique benefits and offer control over the amount you spend on your business’ energy. For example, you can structure your energy supply purchase by fixing certain rates and taking market positions on others.
There are many variables that affect energy costs. External
considerations, such as market
trends, regulatory factors and weather conditions can affect your energy purchase.
However, energy use is primarily influenced by your business’ unique attributes, such as your operations, usage trends and your sensitivity to weather changes.
While external factors may be beyond your control, understanding how you use energy is the first step to ensure you select the right product to best manage costs. In this edition of Customer Insights, our experts will discuss how analyzing your business’ energy usage data can help you select the right energy product plan.
In future articles, AEP Energy will explore how cost-saving opportunities, such as load management and using tools like advanced reporting and analytics, can help you get the most out of the product you choose. The chart below illustrates how a trusted energy advisor, such as AEP Energy, can help you through this process.
Before selecting a product, it’s important to know what behaviors and patterns to look for in your energy use. Evaluating this data allows you to identify unique ways your business uses energy, discover opportunities for operational improvement and effectively select the right product. Here are five key factors you should understand about your business prior to choosing an energy product.
The type of business you operate and the equipment you use will determine your energy usage. In addition, basic lighting and heating, ventilation, and air conditioning (HVAC) system needs are factors that contribute, as well. Knowing the breakdown of your facility’s features, the equipment’s characteristics and the schedule of operation for each energy-consuming device can enable you to predict when your highest energy consumption will occur.
Industry trends and typical energy use patterns are a good place to start with this analysis. A good reference point is to examine the breakdown of energy use for equipment operated by your business. The chart below illustrates the percentage of electricity each type of equipment might use in a similar business to yours. In this example, lighting uses 35% whereas space cooling uses 27% of this business’ total energy consumption. While benchmarking is a good reference, you can also get more in-depth information by performing an energy audit or specialized equipment examination.
A major factor that influences energy use is your business’ hours of operation, especially when the space is occupied and regularly used equipment comes online. Depending on the level of occupancy and processes, hours of operation can cause an increase or decrease in usage trend, which typically follows a regular pattern that you can track. In other cases, intermittent energy spikes may be an indication of when high energy consumption equipment is turned on, or due to a change in operational behavior. This results in less predictable usage trends that need to be accounted for in product structuring and planning. Depending on the flexibility of your operation schedules, you might be able to schedule such energy spikes during off peak hours of low operational impact. A more rigid operation schedule makes it more difficult to precisely plan energy use.
Analytical tools, such as the three heat maps displayed in Exhibit A, show the usage trends of a business over the period of one year. These tools allow you to quickly see if there are any discrepancies such as a red spike at night. For example, if your business’ normal hours are 9 a.m. to 5 p.m., a red spike at night might indicate equipment is running when it should not be, or perhaps the pattern is as expected.
Reading from left to right will identify trends throughout the year while reading top to bottom shows the 24 hours of the day. The intensity of the colors for each of the 8,760 pixels (corresponding to hours in a year) represents the demand for that hour – red being high and blue being low.
In Chart 1 there is a randomly dispersed color pattern indicating a business whose operational patterns are slightly unpredictable. Chart 2 shows a uniform color band between 9 a.m. and 5 p.m. This signifies a business with a standard eight-hour work day, five-days a week. Finally, Chart 3 has a consistent orange and red coloring, indicating a business that is operating at almost the same usage level 24 hours a day, seven days a week.
By organizing hourly data in a heat map, patterns and unusual behaviors that might have gone unnoticed come to light. In Chart 1, there is a band of light blue on the right side, indicating a period of time with very little energy usage. While we would expect to see this pattern in Chart 2 indicating weekend patterns, it is very unusual for this behavior to show up on Chart 1. Understanding this type of anomaly allows further investigation and perhaps adjusting your energy product or operational behavior. For example, if low usage was the result of an operational shutdown, one solution could be to reschedule the shutdown at a time of high-energy costs to reduce overall costs by avoiding these hours.
Weather sensitivity refers to how much your energy use is affected by the weather. If HVAC systems are a large proportion of your energy consumption, then you are more likely to be weather sensitive. By analyzing your annual usage, you can identify if you have a weather-sensitive energy load by observing a noticeable increase in energy usage during summer or winter months, when more energy is used to heat or cool facilities. Since high energy costs generally occur during extreme weather events, being weather sensitive can make it difficult to control market exposure costs during those times.
While the heat maps in Exhibit A show weather-related patterns, you don’t need to view your hourly levels of energy use to spot trends. Exhibit B is an example of a business that charts their total usage each month for a year. You’ll notice that usage is significantly higher during the summer months than winter, spring, and fall. This typically indicates that air conditioning uses a relatively high amount of energy for this location. Similarly, weather-sensitive loads in the winter might indicate an increase in electric heating, whereas usage that remains relatively stable throughout the year, or varies due to process changes, is weather insensitive.
Load flexibility is difficult to quantify, but it is one of the most important considerations for product selection. Load flexibility refers to your ability to schedule operations or adjust standard energy use by shifting the load to another hour or by turning off unnecessary equipment. This is often shaped by your operation’s schedule and weather sensitivity. For example, if operation times are flexible, or the operation of certain equipment can be adjusted easily, you have more flexibility to shift energy usage rather than a business that must maintain a 9-5 working schedule, use equipment during a fixed time, or schedule equipment use far ahead of time. A weather-sensitive user is also less flexible than one who is weather insensitive because they want to keep the comfort level and safety of employees consistent.
Energy efficiency is a measure of how balanced your energy use is over time. A business that is energy efficient uses the same or more services for less energy. When measuring energy efficiency, one indicator is your load factor percentage, which is your average energy load divided by your highest energy load. A higher load factor (those at 65-70%), means more efficient usage.
The load duration curve shown in Exhibit C can help assess a business’ energy usage efficiency.
In Exhibit C, we demonstrate two different types of businesses. These graphs organize demand throughout the 8,760 hours of the year from highest to lowest, rather than chronologically. The shape of the graph provides insight on energy usage. For example, the graph for Business 1 shows a consistent use of energy, resulting in a flat-shaped graph. Flat curves represent less fluctuation in your load, resulting in more predictable costs.
The graph for Business 2 has a sharp decline indicating that this business’ load fluctuates during the year. By better understanding how and when your business uses energy, you can plan to shift energy consumption to less costly time periods that would compensate for the costs of lost production.
As you can see, there are multiple tactics that can be utilized to provide valuable insights about your business’ energy usage. Identifying unique usage behaviors and business patterns will position you to select the right energy product plan for your business. After analyzing the available information, product selection is driven by your desire and ability to actively manage both energy and demand-based charges. There are three main product families to choose from:
Fixed product price plans offer the most simplicity. However, they provide few opportunities for your business to influence costs, which are solely determined by the amount of kWh used. Fixed energy products are ideal if your load isn’t flexible, difficult to plan, or if there are few resources available to do so. These products result in predictable costs over time because the cost is directly related to usage, but they do not provide much opportunity to reduce or control those costs.
Another family of products allow you to fix the price of energy while also allowing you to pay the true costs of other components. The most common components for customers to pass-through are capacity and transmission. These costs are the easiest to manage and constitute approximately 30% of total energy supply costs. True demand products are ideal for businesses who have a solid understanding of what operations or processes use the most energy and have the flexibility to stop or reschedule operations to avoid hours when capacity and transmission peaks might be set. Our next article in April will explain the many load management options you can take advantage of to reduce your energy usage and costs.
Some businesses prefer a combination of budget certainty, flexibility and control. With this type of product, energy costs can include a blend of spot and forward markets. You can have the option to hedge predictable energy load with a fixed price to manage costs, while also having the flexibility to capitalize on market fluctuations with spot market index pricing. These products offer the most control, assuming your load is flexible and can be managed to avoid market volatility. A blend of forward and spot purchases reduces your exposure risk and will allow for cost control for the long term but could create variability during shorter time frames.
Analyzing your energy data is key to understanding your business’ energy
usage and selecting the right product.
If you haven’t done so already,
review your usage data regularly
to ensure your energy product
remains the right
fit for you and assess the effectiveness of cost management methods. If
you need assistance with this evaluation or would like to gain access to better insights of your business’ usage and the best product for you, please contact your trusted AEP Energy sales representative or click here to request a quote.